The Economic Way of Thinking, 13e (Heyne)
Chapter 8 Price Searching
1) The cost-plus-markup theory of price setting
A) explains why firms can’t raise their prices until their costs rise.
B) explains why percentage markups vary.
C) is consistent with what many sellers say about how they set their prices.
D) takes demand into account in explaining relative prices.
2) The cost-plus-markup theory is an inadequate explanation of relative prices because
A) it does not explain why there is a standard percentage markup in most industries.
B) it is too simple, and simple theories are rarely as useful as more complex theories.
C) the theory is inconsistent with observable relationships between marginal costs and prices.
D) people who actually set prices do not describe the process as cost-plus.
3) When firms set prices by adding a fixed percentage markup to marginal costs, they are likely
A) concerned with the rate of profit rather than its net amount.
B) earning a satisfactory rather than a maximum profit.
C) exploiting their customers.
D) poorly managed.
E) searching for the most advantageous prices to set on the basis of limited information.
4) What criticism does the textbook level against the cost-plus-markup theory of price setting?
A) The theory does not agree with what businessmen say about price setting.
B) The theory does not account for vastly different percentage markups on different products.
C) The theory implies firms will sometimes want to set prices below average cost per unit.
D) The theory ignores sunk costs.
E) All of the above.
5) The cost-plus-markup theory of price setting
A) explains most prices but not all.
B) explains why firms can’t raise their prices until their costs rise.
C) explains why percentage markups are so similar from firm to firm and industry to industry.
D) does all of the above.
E) does none of the above.
6) A typical corn farmer won’t use cost-plus-markup pricing because
A) his costs are low enough.
B) he isn’t interested in maximizing net revenue.
C) he strives for markdown pricing, not markup pricing.
D) he has no control over the market price of corn.
7) A typical wheat farmer would never consider cost-plus-markup pricing because
A) he cannot clearly estimate his costs.
B) the most profitable price he can ask for is the prevailing market price.
C) the government won’t allow it.
D) he is a price searcher.
8) According to the textbook, when claim they are using the cost-plus-markup formula, they
A) usually choose a 10 percent markup.
B) usually choose a 50 percent markup.
C) usually choose a 100 percent markup.
D) might not be correctly describing their price-setting behavior.
9) According to the text, the cost-plus-markup procedure
A) is the only sensible way to set prices.
B) is a sure-fire way to ruin a business.
C) is a general rule of thumb for price searchers.
D) can be practiced only by price takers.
10) Most businesses probably claim they use cost-plus-markup pricing because
A) they are price takers.
B) they are maximizing net revenue.
C) they have no better way to explain their price-setting behavior.
D) they are responsible for long-run inflation.
11) The textbook rejects the cost-plus-markup theory of price setting because
A) business firms do not describe their price-setting procedures as cost-plus procedures.
B) competitors and monopolists set prices in different ways.
C) it cannot explain the prices we actually observe.
D) it ignores the role of government in regulating prices.
E) no single theory can explain all price-setting.
12) If Ed Sike (who you met in Chapter 8) lowers ticket prices to a point where the number of
tickets demanded is greater than the number of seats available,
A) Ed will be in a good position to grant favors to his friends.
B) net revenue will be negative.
C) net revenue will be positive but not necessarily at the maximum level.
D) resources will not be allocated efficiently.
E) total revenue will be maximized.
13) Ed Sike was able to increase his net revenue by charging different prices to different
customers because
A) his cost of serving different customers varied.
B) his marginal costs declined as his sales increased.
C) his marginal costs were rising.
D) he could distinguish faculty from students at low cost.
14) Net revenue is defined as
A) marginal revenue minus marginal cost.
B) total revenue minus marginal cost.
C) total revenue minus total cost.
D) gross revenue minus depreciation.
15) Marginal revenue is
A) revenue earned by increasing the margin between cost and price.
B) revenue earned by purchasing stock on credit.
C) revenue on which a seller is not dependent for survival.
D) the additional monetary receipts that result from a decision.
16) The logical principle for maximization can be stated as follows:
A) Do it if it feels good.
B) Do it if the benefit from doing it is greater than the cost of doing it.
C) Do it unless it’s illegal, immoral, or fattening.
D) Do it whenever the marginal benefit equals the marginal cost.
17) The percentage markups which sellers use
A) are based on their estimates or guesses about marginal cost and marginal revenue for
particular goods.
B) are between 10 and 15 percent.
C) are the same on all products of a single firm.
D) differ between products but are the same on average for all firms.
18) Sellers who lower their prices and consequently sell a larger quantity earn more
A) gross (or total) revenue as a result.
B) gross revenue only if the demand is elastic.
C) net and gross revenue if the demand is inelastic.
D) net revenue (revenue minus cost) as a result.
19) The basic rule for maximizing net revenue is: Charge a price, or set of prices, so that
A) expected marginal revenue equals expected marginal cost.
B) expected marginal revenue exceeds expected marginal cost.
C) expected marginal revenue is equal to or less than expected marginal cost.
D) marginal revenue turns out in practice to be equal to or less than marginal cost.
E) marginal revenue turns out in practice to be greater than marginal cost.
20) According to your textbook, which procedure is the general rule to follow in order to
maximize net revenue?
A) Always choose a 25 percent markup if demand is inelastic.
B) Always choose a 25 percent markup if demand is elastic.
C) Always choose a markup between 50 and 100 percent (inclusively) if demand in inelastic.
D) Always choose no more than a 10 percent markup if demand is perfectly elastic.
E) None of the above.
21) According to your textbook, what is the general rule to follow in order to maximize net
revenue?
A) Take any action if, but only if, the expected marginal revenue exceeds the expected marginal
cost.
B) Take any action you expect will not be copied by your competitors.
C) Take as many innovative actions as you can, and leave the copying up to smaller firms in the
market because they are least likely to increase their market share.
D) Charge the lowest possible price.
22) To maximize net revenue, a price searcher should
A) set total revenue equal to total cost.
B) set marginal revenue equal to marginal cost.
C) set net revenue equal to zero.
D) reduce output if marginal costs are increasing.
23) To maximize net revenue, a price searcher should
A) set marginal revenue as far above marginal cost as possible.
B) set marginal revenue as far below marginal cost as possible.
C) set marginal revenue equal to marginal cost.
D) do none of the above.
24) If a producer can sell each and every unit he can possibly produce for $10 each, then
A) he is a price taker.
B) the demand for his product is infinitely elastic.
C) his marginal revenue curve is a horizontal line at $10.
D) all of the above are true.
25) If a firm can increase its sales only by lowering its price, then
A) the firm is a price searcher.
B) the firm’s marginal revenue will be less than price.
C) the demand curve for the firm’s product is negatively sloped.
D) all of the above are true.
26) Which statement below is true for a price searcher?
A) Marginal revenue can only be positive.
B) Marginal revenue can only be negative.
C) Marginal revenue can only be zero.
D) Marginal revenue can be positive, negative, or zero.
27) Which statement below is true for a price taker?
A) Marginal revenue can only be positive.
B) Marginal revenue can only be negative.
C) Marginal revenue can only zero.
D) Marginal revenue can be positive, negative, or zero.
28) Which statement below is true for a price searcher?
A) Net revenue can only be positive.
B) Net revenue can only be negative.
C) Net revenue can only be zero.
D) Net revenue can be positive, negative, or zero.
29) Which statement below is true for a price taker in the long run?
A) Net revenue can only be positive.
B) Net revenue can only be negative.
C) Net revenue can only be zero.
D) Net revenue can be positive, negative, or zero.
30) What’s another word for “marginal”?
A) Phenomenal
B) Additional
C) Sentimental
D) Detrimental
E) Magical
31) What’s another word for “marginal”?
A) Inelastic
B) Sentimental
C) Incremental
D) Fundamental
E) Really mental
32) What best determines the price a price taker will charge?
A) Demand
B) Revenue
C) Cost
D) Reputation
33) What best determines the price a price searcher will charge?
A) Reputation
B) Demand
C) Revenue
D) Cost
34) Of the following, which determines the price a price searcher will be able to charge?
A) The costs of capital
B) The costs of labor
C) Advertising costs
D) Demand
E) A, B, and C above.
35) Fill in the blank: Your textbook authors suggest ________ is the goal of a price-searching
firm.
A) just getting by
B) maximizing sales
C) maximizing net revenue
D) maximizing total revenue
E) maximizing the markup
36) A business can be operated profitably at a loss for an indefinite period of time
A) if it is unable to meet all their obligations but able to cover operating costs.
B) if we neglect the social costs of discriminatory pricing.
C) for firms that enjoy special legal privileges.
D) if costs are calculated as marginal opportunity costs.
37) Compared with price searchers’ markets, price takers’ markets are likely to result in
A) less advertising.
B) less competition.
C) lower output.
D) more profit.
38) Is it possible for the total market demand for a good at the prevailing price to be inelastic
while the demand facing any one seller of the good is highly elastic?
A) No, because each seller’s demand is a part of the total demand.
B) No, because if this were the case the price would fall until the market demand became elastic.
C) No, because if this were the case the price would rise until the market demand became elastic.
D) Yes, and it’s actually quite common.
39) Percentage markups are characteristically lower in supermarkets than in convenience stores
because
A) convenience stores must charge high markups to compensate for low volume.
B) marginal revenue is greater in supermarkets than in convenience stores.
C) supermarkets are able to operate with a lower percentage return on investment.
D) supermarkets can take advantage of quantity discounts.
E) the demand curves of customers patronizing supermarkets tend to be more elastic.
40) Marginal revenue for a price taker is
A) equal to price.
B) less than price.
C) more than price.
D) unrelated to price.
41) Marginal revenue is less than price for
A) all price searchers.
B) all price takers.
C) price searchers who can’t restrict price reductions to the new purchases they want to attract.
D) sellers who face inelastic demand curves.
42) Which statement is true?
A) For a price taker, marginal revenue is always less than price.
B) For a price searcher, marginal revenue is always less than price.
C) For a price searcher, marginal revenue always equals price.
D) For a price taker, marginal revenue is always greater than price.
43) A price searcher faces the following demand function: At $7, 6, 5, 4, and $3, the quantity
demanded is 300, 400, 500, 600, and 700 units respectively. Which statement below is true?
A) Total revenue is $11,500.
B) Marginal revenue is $300 when the price is $5.
C) Marginal revenue is $100 when the price is $5.
D) Marginal revenue is $2100 when the price is $3.
44) A price searcher faces the following demand function: At $7, 6, 5, 4, and $3, the quantity
demanded is 300, 400, 500, 600, and 700 units respectively. If the firm’s marginal cost is $100 at
any level of output, it would maximize net revenues by
A) producing 400 units and charging $6.
B) producing 500 units and charging $5.
C) producing 600 units and charging $4.
D) producing 700 units and charging $3.]
45) A price searcher faces the following demand function: At $7, 6, 5, 4, and $3, the quantity
demanded is 300, 400, 500, 600, and 700 units respectively. If the firm’s marginal cost is $300 at
any level of output, it would maximize net revenues by
A) producing 400 units and charging $6.
B) producing 500 units and charging $5.
C) producing 600 units and charging $4.
D) producing 700 units and charging $3.
46) Suppose a price searcher faces the following demand curve: At $100, $90, $80, $70, and
$60, the quantity demanded is 1, 2, 3, 4, and 5 units respectively. Which statement below is true?
A) Total revenue is $100.
B) Total revenue is $190 when 2 units are sold.
C) Total revenue is $400 when 5 units are sold.
D) Marginal revenue is $80 when the price is $90.
47) Suppose a price searcher faces the following demand curve: At $100, $90, $80, $70, and
$60, the quantity demanded is 1, 2, 3, 4, and 5 units respectively. If the firm’s marginal cost is
$40 at any level of output, it would maximize net revenues by
A) producing 5 units and charging $60.
B) producing 4 units and charging $70.
C) producing 3 units and charging $80.
D) producing 2 units and charging $90.
48) A price searcher faces the following demand curve: At $9, $8, $7, and $6, the quantity
demanded is 10, 20, 30, and 40 units, respectively. If the firm’s marginal cost is $50 at any level
of output, it would maximize net revenues by
A) producing 10 units and charging $9.
B) producing 20 units and charging $8.
C) producing 30 units and charging $7.
D) producing 40 units and charging $6.
E) charging $50 plus markup.
49) A price searcher faces the following demand curve: At $9, $8, $7, and $6, the quantity
demanded is 10, 20, 30, and 40 units, respectively. If the firm’s marginal cost is $70 at any level
of output, it would maximize net revenues by
A) producing 10 units and charging $9.
B) producing 20 units and charging $8.
C) producing 30 units and charging $7.
D) producing 40 units and charging $6.
E) charging $70 plus markup.
50) The marginal cost to a grocer of selling avocados, which would have to be thrown away if
they are not sold immediately, is approximately
A) the overhead cost per avocado sold.
B) the price of replacing the inventory.
C) their wholesale purchase price.
D) zero.
51) Marginal revenue is less than price for price searchers
A) because they are monopolists.
B) because they necessarily have some costs.
C) if they enjoy grants of legal privilege.
D) when they cannot charge all customers the maximum they are willing to pay for each unit
purchased.
E) when they have the ability to practice price discrimination.
52) In setting their prices, price searcher firms ignore
A) demand.
B) marginal cost.
C) the prices of competitors.
D) all of the above.
E) none of the above.
53) When does a price searcher’s marginal revenue curve lie below its demand curve?
A) At all times, since this is the definition of a price searcher
B) When it cannot confine price reductions to the new sales it’s trying to attract by lowering its
price
C) When it is producing more than the net revenue maximizing quantity
D) When its marginal cost curve is rising
E) When the demand curve slopes downward to the right
54) If the baseball team can sell 6000 box-seat tickets when they set the price at $10 and 7000
box-seat tickets when they lower the price to $8, the marginal revenue per ticket between 6000
and 7000 tickets is
A) $60,000.
B) $56,000.
C) $9.
D) $2.
E) minus $4.
55) For a seller who is a price taker, marginal revenue is always
A) less than marginal cost.
B) more than marginal cost.
C) the same as marginal cost.
D) less than price.
E) the same as price.
56) If a university expects $160,000 in ticket revenue from five home football games and
$180,000 in ticket revenue if it adds a sixth game, the
A) marginal revenue of the sixth game is $20,000,
B) marginal revenue of the sixth game is $30,000.
C) sixth game will cost more than each of the previous five games.
D) university should add a sixth game only if the average cost of a game is less than $30,000.
57) A unit of output whose production and sale adds less to cost than it generates in additional
revenue is
A) a profitable unit to produce and sell if marginal cost declines with additional output.
B) a profitable unit to produce and sell if total receipts exceed total costs.
C) a profitable unit to produce and sell unless it must be sold at a price below average unit cost.
D) a profitable unit to produce and sell.
58) When its marginal cost increases, a firm aiming at maximizing net revenue
A) can always raise its price, but only by the amount of the cost increase.
B) can often raise its price by more than the cost increase.
C) can raise its price, but always by less than the cost increase.
D) may not be able to raise its price at all.
59) A firm selling in a price-takers’ market
A) can reduce its price without thereby lowering its marginal revenue.
B) can reduce its price without thereby lowering its total revenue.
C) faces a perfectly elastic demand curve.
D) has marginal costs equal to marginal revenue at all levels of output.
60) Which of the following is most likely to occur if a price-takers’ market displaces a price-
searchers’ market?
A) Costs will be higher.
B) Efficiency will be less.
C) Net revenue will be larger.
D) Output will be larger.
E) Prices will be higher.
61) When marginal revenue for a seller is more than marginal cost, the seller is
A) making a positive net revenue but not necessarily maximizing net revenue.
B) maximizing net revenue and making a positive net revenue.
C) maximizing net revenue even if net revenue is negative.
D) not maximizing net revenue.
62) The total market demand for the wheat grown by U.S. farmers is
A) always equal to the total supply.
B) completely or perfectly elastic.
C) completely or perfectly inelastic.
D) less than completely or perfectly elastic.
E) unit elastic at the prevailing price.
63) By selling additional wheat, each U.S. wheat farmer
A) decreases his total revenue because the demand for his wheat is elastic.
B) decreases his total revenue because the demand for his wheat is inelastic.
C) increases his total revenue because the demand for his wheat is elastic.
D) increases his total revenue because the demand for his wheat is inelastic.
64) If property taxes were increased in a city, what would be the most likely effect on residential
rents after two or three months? They would probably
A) fall.
B) rise in proportion to taxes.
C) rise more than in proportion to taxes.
D) stay roughly unchanged.
65) Sellers are sure the demand for their product is relatively inelastic at the price currently being
charged
A) could increase their net revenue by raising the price.
B) could increase their total revenue by lowering the price.
C) would decrease their net revenue if they raised the price.
D) would decrease their total revenue if they raised the price.
66) If Brazil’s gross revenue from coffee exports doubles from one year to the next even though
the number of bags of coffee exported declines 50 percent,
A) individual Brazilian coffee producers are price searchers.
B) individual Brazilian coffee producers have substantial market power.
C) the demand for Brazilian coffee is most likely elastic.
D) the demand for Brazilian coffee is most likely inelastic.
67) If the Palace Cinema can sell 200 tickets at $4 and 300 tickets at $3, our best estimate of the
marginal revenue from sale of the 250th ticket is
A) $4.
B) $3.50.
C) $3.
D) $1.
68) If the Palace Cinema can sell 200 tickets at $4 and 300 tickets at $3, the demand for Palace
Cinema tickets between the two prices is
A) elastic.
B) inelastic.
C) marginal.
D) unit elastic.
69) If a seller can sell 5 units at $8 each but can sell 6 units only by lowering the price to $7 (and
must sell all units at the same price), the marginal revenue from selling the 6th unit is
A) $42.
B) $7.50.
C) $7.
D) $2.
E) none of the above.
70) If a seller can sell 5 units at $8 each and can sell a 6th unit separately for $7 (the people
willing to pay $8 don’t learn about the reduced price), the marginal revenue from selling the 6th
unit is
A) $47.
B) $7.50.
C) $7.
D) $2.
E) none of the above.
71) If the Slamdunkers can sell 5000 season tickets for $100 and 6000 season tickets only by
lowering the price (for all purchasers) to $80, our best estimate of the marginal revenue from sale
of the 550th season ticket is
A) $100.
B) $90.
C) $80.
D) -$20.
72) If the Slamdunkers can sell 5000 season tickets for $100 and 6000 season tickets only by
lowering the price to $80, the demand for season tickets between the two prices is
A) elastic.
B) inelastic.
C) marginal.
D) unit elastic.
73) According to the textbook, price discrimination is
A) illegal.
B) morally justified.
C) net-revenue maximizing.
D) unfair to the different groups of customers.
74) Price discrimination by sellers usually results in
A) coercing people into buying goods they don’t want to purchase.
B) coercing people into paying higher prices than they want to pay.
C) less total but more net revenue for the seller.
D) new and additional opportunities for some buyers.
75) Price discrimination by sellers is usually observed only in situations where
A) low-price customers can easily resell to high-price customers.
B) prices are set by competing monopolies.
C) sellers are bigots.
D) sellers can effectively identify customers by their demand for the product.
76) People who give erroneous explanations of how they themselves perform a particular task,
such as tying their shoelaces or setting prices,
A) cannot be performing the task successfully.
B) may nonetheless perform the task successfully.
C) must be lying.
D) would necessarily perform the task more successfully if they understood it correctly.
77) If the manager of a nonprofit enterprise sets prices below market clearing levels, she
A) increases the net revenue of the enterprise.
B) provides herself with control over a valuable good.
C) reduces her personal popularity.
D) produces all of the above consequences.
78) Who, among the following, is least likely to price discriminate?
A) The local tavern
B) The local diner
C) The local potato farmer
D) The telephone company
79) Who, among the following, is least likely to practice cost-plus-markup pricing?
A) Dolly J. Dalrymple, a Wisconsin dairy farmer
B) The Wisconsin Cheeses-R-Us factory
C) The Cheese-of-the-Month Club
D) Trick question: all are equally likely to use cost-plus-markup pricing.
80) Colleges offer tuition scholarships even when they are running budget deficits because
colleges
A) are public service institutions.
B) can often earn additional net income by offering tuition scholarships.
C) hope to receive contributions later from the recipients of scholarships.
D) set tuition levels and establish scholarship policies without considering the monetary
advantages.
81) The function of the financial statement, which colleges ask parents to fill out to make their
children eligible for tuition scholarships, is to
A) determine cases of genuine need.
B) maintain the college’s eligibility for federal assistance.
C) permit the college to confine its aid to students who can make most effective use of the aid.
D) provide information about the demand curves of potential customers.
82) Which statement below is true?
A) Only price takers practice price discrimination.
B) Non-profit firms do not practice price discrimination.
C) No U.S. government organization is officially allowed to practice price discrimination.
D) All of the above are true.
E) None of the above is true.
83) Fill in the blanks: A price discriminating firm will tend to charge a ________ price for the
category of customer with the ________ elasticity of demand.
A) higher; higher
B) higher; lower
C) lower; lower
D) 100 percent markup; infinite
84) Fill in the blanks: A price discriminating firm will tend to charge a ________ price for the
category of customer with the ________ elasticity of demand.
A) lower; lower
B) higher; lower
C) lower; higher
D) 100 percent markup; infinite
85) Why are prices for groceries and household items typically higher at a 24-hour convenience
store compared to stores open from 6 am to 11 pm?
A) Shoppers’ options are generally fewer in the middle of the night.
B) The elasticity of demand of the middle-of-the-night shopper is typically higher than the mid-
day shopper’s elasticity.
C) The owners of the 24-hour stores are typically more selfish than the others.
D) The owners of the 24-hour stores are more interested in maximizing net revenue compared to
the others.
86) If price discrimination enables sellers to increase net revenues, why don’t all sellers try it?
Because
A) some sellers can’t manipulate their price.
B) some sellers can’t control resentment.
C) some sellers can’t prevent low-price buyers reselling to high-price buyers.
D) of all the above reasons.
87) If price discrimination enables sellers to increase net revenues, why don’t all sellers try it?
Because
A) some sellers can’t control resentment.
B) some sellers are price takers.
C) some sellers find it too costly to devise, administer, and monitor.
D) of all the above reasons.
88) Tourists in foreign countries are often charged more for hand-made items at tourist shops
compared to the local customers. Why?
A) The tourists are typically less informed than the local customers.
B) The tourists typically have fewer available alternatives compared to the local customers.
C) The shop owners can usually identify tourists.
D) For all of the above reasons.
89) The more successful a seller is in inducing buyers to pay the maximum price they would be
willing to pay rather than do without the good, the
A) closer will the seller’s marginal revenue curve come to the demand curve.
B) greater will be the demand for the good.
C) more elastic will be the demand for the good.
D) more inelastic will be the demand for the good.
90) Movie theaters usually set lower prices for children than for adults because
A) children can be served at lower costs.
B) they expect to make up the loss on the sale of refreshments.
C) they think the price elasticity of demand for movie tickets is quite elastic for children at the
regular or adult price.
D) they want to get young people into the habit of attending movies.
91) Sellers who charge different prices to different customers can increase their net revenue
A) by forcing some customers to pay more for the product than it is worth to them.
B) by getting high-price customers in effect to subsidize sales to low-price customers.
C) if the demand of some customers for the product enables the sellers to build volume by selling
at prices below marginal cost.
D) if they can prevent customers from reselling to one another.
92) A seller who succeeds in getting his various customers to pay different prices for the same
good
A) is keeping his marginal revenue closer to his demand curve than it would otherwise be.
B) is not using the marginal cost-marginal revenue formula to set prices.
C) must be paying attention to overhead or sunk costs in setting prices.
D) thereby misallocates resources because sales will be less than if a single price is charged.
93) Which of the following is not one of the obstacles mentioned in the text to a successful
system of price discrimination? Inability to
A) evade legal restrictions on discrimination.
B) identify differences in demand among customers.
C) prevent customers from reselling the product.
D) prevent resentment from arising among the people who pay more.
94) Restaurants catering to both a lunch and dinner trade are likely to mark their prices up above
the cost of the food more for dinner than for lunch because
A) the demand is greater at dinner.
B) the demand is less at dinner.
C) the demand is less elastic at dinner.
D) the demand is more elastic at dinner.
95) A price searcher can move its marginal revenue curve closer to its demand curve if it can
A) achieve significant economies of scale.
B) charge different buyers different prices for the same good.
C) price at the point of unit demand elasticity.
D) produce at constant marginal cost.
E) set marginal revenue equal to marginal cost.
96) If grocery stores in high-crime areas charge higher prices than stores elsewhere, it is because
A) each item sold must bear its share of the higher insurance costs.
B) residents of high crime areas tend to be less price-conscious shoppers.
C) the costs of crime are a legitimate cost of doing business.
D) the store owners are not setting marginal cost equal to marginal revenue.
E) there is less competition between stores in high-crime areas.
97) Hardcover books usually cost much more to purchase than do otherwise identical paperback
editions of the same book because
A) hardcover books typically last longer.
B) the demand for hardcover books is typically less elastic than the demand for paperback books
at the same price.
C) the marginal cost of producing hardcover books typically rises as output increases.
D) the marginal cost of producing paperback books typically falls as output increases.
E) the mergers in the book-publishing industry have encouraged price discrimination.
98) Publishers charge much higher prices for a book in hardcover than for the same book in
paper cover because
A) the demand for hardcover books is less elastic at the same price.
B) the marginal cost of attaching hardcovers is very high.
C) there are larger sunk costs in the production of hardcover editions.
D) they have less bargaining power against bookstores in marketing paperback editions.
E) they want to subsidize students.
99) Why does a new hardcover Stephen King novel have a higher price than the paperback
edition?
A) It costs more to produce.
B) The elasticity of demand differs.
C) The publisher is more greedy when marketing the hardcover edition.
D) The publisher is a price searcher on the hardcover editions and a price taker on the paperback
editions.
100) If a commercial airline starts offering maxi-saver fares at huge discounts to passengers who
purchase tickets at least 30 days in advance and agree to stay over a Saturday night, what is the
most likely effect upon first-class passenger service?
A) First-class fares will rise somewhat to compensate for the loss on other fares.
B) The demand for first-class service may fall somewhat because the price of a substitute good
has decreased substantially.
C) The marginal cost of first-class service will rise somewhat because the total cost must be
allocated among all passengers.
D) The marginal revenue from first-class service will rise somewhat because first-class service is
now more clearly a superior good.